Question

ABC-A Service Application
Grand Haven is a senior living community that offers a full range of services including independent living, assisted living, and skilled nursing care. The assisted living division provides residential space, meals, and medical services (MS) to its residents. The current costing system adds the cost of all of these services (space, meals, and MS) and divides by total resident days to get a cost per resident day for each month. Recognizing that MS tends to vary significantly among the residents, Grand Haven's accountant recommended that an ABC system be designed to calculate more accurately the cost of MS provided to residents. She decided that residents should be classified into four categories (A, B, C, D) based on the level of services received, with group A representing the lowest level of service and D representing the highest level of service. Two cost drivers being considered for measuring MS costs are number of assistance calls and number of assistant contacts. A contact is registered each time an assistance professional provides medical services or aid to a resident. The accountant has gathered the following data for the most recent annual period:

Resident Classification	Annual Resident Days	Annual Assistance Hours	Number of Assistance Contacts
A	8,760	15,000	60,000
B	6,570	20,000	52,000
C	4,380	22,500	52,000
D	2,190	32,500	52,000
	21,900	90,000	216,000

Other data:
Total cost of medical services for the period	$2,600,000
Total cost of meals and residential space	$1,742,500

a. Determine the ABC cost of a resident day for each category of residents using assistance hours as the cost driver.

Round answer below to the nearest dollar.

Medical services cost per assistance hour $Answer   

NOTE: Use your rounded answer above to compute answers below. Round final answers to the nearest dollar.

	Per Day Costs
	Medical Services	Meals and Residential	Total
Class A	Answer	Answer	Answer
Class B	Answer	Answer	Answer
Class C	Answer	Answer	Answer
Class D	Answer	Answer	Answer

b. Determine the ABC cost of a resident day for each category of residents using assistance contacts as the cost driver.

Round answer below to the nearest dollar.
Medical services cost per assistance contacts $Answer

NOTE: Use your rounded answer above to compute answers below. Round final answers to the nearest dollar.

	Per Day Costs
	Medical Services	Meals and Residential	Total
Class A	Answer	Answer	Answer
Class B	Answer	Answer	Answer
Class C	Answer	Answer	Answer
Class D	Answer	Answer	Answer

Answer 1

Part (a)

Assuming assistance hour as cost driver .

Calculation of rate of allocation

1. Medical service cost $26,00,000.00

Total assitant hour 90,000.00

Rate of allocation for medical service cost

1. Meals and residential cost $17,42,500.00

Total assitant hour 90,000.00

Rate of allocation for meals and residential cost cost

Allocation of Cost

Medical services cost

Resident	Allocation Rate		Assistance Hour		Cost (in $)	Number of Residence day	Cost per day (in $)	Rounded off (in $)
A	29		15,000.00		4,35,000.00	8,760.00	49.657	50
B	29		20,000.00		5,80,000.00	6,570.00	88.28	88
C	29		22,500.00		6,52,500.00	4,380.00	148.972	149
D	29		32,500.00		9,42,500.00	2,190.00	430.365	430
Total					26,10,000.00

Meals and Resident cost

Resident	Allocation Rate		Assistance Hour		Cost (in $)	Number of residence day	Cost per day (in $)	Roundef off (in $)
A	19		15,000.00		2,85,000.00	8,760.00	32.53	32
B	19		20,000.00		3,80,000.00	6,570.00	57.838	58
C	19		22,500.00		4,27,500.00	4,380.00	97.602	98
D	19		32,500.00		6,17,500.00	2,190.00	281.96	282
Total					17,10,000.00

Calculation of ABC cost for each resident day

Resident	Medical Service (in $) (a)	Meal and Resident (in $) (b)	Total Cost (in $) (c=a+b)	Number of Resident Day (d)	Per day Cost (in $) (c/d)	Rounded off (in $)
A	4,35,000.00	2,85,000.00	7,20,000.00	8,760.00	82.19	82
B	5,80,000.00	3,80,000.00	9,60,000.00	6,570.00	146.11	146
C	6,52,500.00	4,27,500.00	10,80,000.00	4,380.00	246.57	247
D	9,42,500.00	6,17,500.00	15,60,000.00	2,190.00	712.32	712
Total	26,10,000.00	17,10,000.00	43,20,000.00

Number of Resident Day (d)   Per day Cost (in $) (c/d)   Rounded off (in $)
A   4,35,000.00   2,85,000.00   7,20,000.00

Part (b)

Assuming assistance contact as cost driver .

Calculation of rate of allocation

1. Medical service cost $26,00,000.00

Total assistance contact 2,16,000.00

Rate of allocation for medical service cost

1. Meals and residential cost $17,42,500.00

Total assistance contact 2,16,000.00

Rate of allocation for meals and residential cost cost

Allocation of Cost

Medical services cost

Resident	Allocation Rate		Assistance Contact		Cost (in $)	Number of Residence day	Cost per day (in $)	Rounded off (in $)
A	12		60,000.00		7,20,000.00	8,760.00	82.19	82
B	12		52,000.00		6,24,000.00	6,570.00	94.977	95
C	12		52,000.00		6,24,000.00	4,380.00	142.465	143
D	12		52,000.00		6,24,000.00	2,190.00	284.931	285
Total					25,92,000.00

Meals and Resident cost

Resident	Allocation Rate		Assistance Contact		Cost (in $)	Number of Residence day	Cost per day (in $)	Rounded off (in $)
A	8		60,000.00		4,80,000.00	8,760.00	54.794	55
B	8		52,000.00		4,16,000.00	6,570.00	63.318	63
C	8		52,000.00		4,16,000.00	4,380.00	94.977	95
D	8		52,000.00		4,16,000.00	2,190.00	189.954	190
Total					17,28,000.00

Calculation of ABC cost for each resident day

Resident	Medical Service (in $) (a)	Meal and Resident (in $) (b)	Total Cost (in $) (c=a+b)	Number of Resident Day (d)	Per day Cost (in $) (c/d)	Rounded off (in $)
A	7,20,000.00	4,80,000.00	12,00,000.00	8,760.00	136.98	137
B	6,24,000.00	4,16,000.00	10,40,000.00	6,570.00	158.29	158
C	6,24,000.00	4,16,000.00	10,40,000.00	4,380.00	237.44	237
D	6,24,000.00	4,16,000.00	10,40,000.00	2,190.00	474.88	475
Total	25,92,000.00	17,28,000.00	43,20,000.00

(NOTE: DIFFERENCE IN TOTAL COST IS DUE TO ROUNDING OFF TO NEAREST DOLLAR)